What is a “rich” city? A city that invests the highest sums in its residents. The rich cities invest NIS 4,600-8,300 net per resident per year, while the “poor” cities invest only up to NIS 1,100 per resident. This is a gap of hundreds of percent.
The cities of Tel Aviv, Herzliya and Ramat Hasharon lead in investing in children with an investment of about NIS 6,000 per child, and the cities at the bottom of the ranking invest up to NIS 1,000 only. It means that the gaps are glaring.
In recent years, the Ministry of Finance, the Ministry of Construction and Housing and the Israel Lands Authority have signed umbrella agreements with many authorities for the construction of hundreds of thousands of housing units, so that the state will finance the development and infrastructure costs. At the same time, the VATML approved and promotes dozens of plans containing large amounts of housing units. In the blueprints, areas are drawn near the housing units that are “purple spots” of profitable real estate. The latter are determined without strict and controlled economic and planning tests.
Background: The residential property tax does not cover the costs
An in-depth examination of the urban planning policy reveals that the authorities that build housing units will be required to increase or at least maintain the current level of investment in the resident, however the residential property tax that the residents pay is not sufficient and the authority will be required to finance its residents by building profitable real estate.
Each additional resident requires 15-20 square meters of yielding real estate that will pay more than the NIS 93 per square meter property tax paid today on average. Therefore, it is likely that the competition between the authorities for commercial and office space will intensify.
Investment per resident is calculated by the total payments in the city’s current budget minus the unusual payments and receipts (in the current budget) minus the state’s participation (that is, from the own revenues that the city generates only).
The five “richest” cities in Israel – Tel Aviv-Jaffa, Ramat Hasharon, Ra’anana, Haifa and Hod Hasharon. The cities of Eilat and the two relatively “small” cities of Nesher and Yokneam are also highly ranked.
The five cities at the bottom of the ranking – the “poor” ones are: Rahat, Araba, Baka al-Grabiya, Umm al-Fahm and Modi’in Illit.
The variables that affect the investment in residents
In the existing system, there are three variables that affect the settlement’s ability to invest in a resident: the property tax rates, the square footage of the yielding real estate and the collection rate.
The average national property tax for residences – 34 NIS per square meter (there are municipalities where the property tax is higher than 60 NIS per square meter and also those where it approaches 70 NIS per square meter). On average, a resident pays about 1,600 NIS per year in property tax for residences and the city is required to finance About NIS 1,500 itself. The way to financing will be through the planning and development of profitable real estate (commerce, offices, hotels and industry for that matter), and so as the city attracts higher demand for these areas, its own revenues will increase.
The property tax yields a very high yield, two to three times the residential property tax, and the average income in the city also stems from a different mix of commerce (the highest rate per square meter), offices and industry/logistics (the lowest rate per square meter).
The gaps between the authorities are large and reflect a state of inequality. Thus, sometimes in the same industrial area where only a blue line separates one settlement from another, there are two different rates for property tax on yielding real estate. The policy here too must change.
The yielding real estate area per inhabitant and income from yielding real estate per inhabitant are also extremely significant parameters in the definition of wealthy cities. This is due to the fact that these areas are required to finance the rest of the investment in the resident, after the low property tax payments for residences.
This area is derived from the location economy (“location, location and location”) but, above all, from the existence of a clear economic strategy, which adjusts the locations of the yielding real estate to the competitive advantages of the city on the one hand and to the location preferences of companies on the other hand. Sophisticated cities create the conditions for attracting businesses to them as well at the expense of competing cities.
The five leading cities in terms of income from real estate yielding shekels per resident are Tel Aviv-Jaffa, Eilat, Herzliya, Haifa and Petah Tikva. The five cities at the bottom of the ranking: Modi’in Illit, Kfar Yona, Kalanseva, Beitar Illit and Araba;
In the “status quo” scenario – most of the rich cities will continue to be rich and most of the poor cities will continue to be poor.
Between the years 1980-2021, the population of the State of Israel grew by about 135 thousand people per year on average. In order to invest an average of NIS 1,500 in a resident per year (only the missing gap between the residential property tax payment per resident and the average net investment in a resident) an annual addition of approximately 52 million square meters is required at the national level – at an average property tax level of NIS 93 per square meter of real estate yields (according to the current average rate).
On the other hand, based on the data of the Central Bureau of Statistics, in the last decade only about 1.7 million gross square meters were built each year on average. Why don’t they build more? There is no demand, certainly not everywhere.
trade – The demand for commercial space is small, and the industry has reached saturation. To date, an average of 420,000 square meters have been built every year, more than twice what is required, and in addition, about a million square meters are planned today in over 100 shopping centers, of which necessarily not all will be built.
offices – The scope of the estimated annual demand in Israel is 800-1,000 thousand square meters, of which 250-300 thousand square meters for high-tech offices.
industry – Production leaves the State of Israel for other countries and without investment and development in this area as well, it is expected that the scope of construction will decrease. Within this market, the construction for logistics and storage areas compensates – 30% of the total construction for industry of about 700 thousand square meters in each of the last five years, however property tax payments are very low per square meter.
In order to cover the average level of service per resident, an actual construction exceeding 52 million square meters of yielding real estate is required. Meaning, there is an annual and permanent structural deficit of about 800 thousand square meters.
produce applicable economic strategies
Therefore, residential construction requires thinking about building yielding real estate that will materialize and checking demand for each sub-market separately and/or “changing the method”?
● The cities are required to conduct themselves as a business in a competitive and survival world and to produce for themselves applicable and frequently updated economic strategies and in addition to stop producing plans that are not connected to the market and that will not be realized.
● The method of income distribution and the manner of determining the property tax rates must be changed and the property tax rates for residences must be raised. It is right to allow the cities to set the property tax rates as well and with the goal of being competitive with the cities that compete with them.
● Planning – change the planning spaces from localities, cities and districts to functional spaces as well as plan with real and controlled numbers. Today, planning is disconnected from the economy and the “numbers” and every city plans profitable areas on the assumption that there is no other city in Israel besides it.
It is necessary to produce for each functional space possible competitive advantages, clear and different from the others and to produce work tools for planners to examine the capacity of the yielding real estate.
Deborah Rockin also participated in the writing of the article